Loans

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Loans

Money can be borrowed from a financial institution to buy a car or build a garage, usually as a personal loan. Of course, some payment, called interest, has to be made for the use of that money. This interest and the amount borrowed is usually paid back in instalments. The total amount paid back is equal to the amount borrowed plus the interest.

When the interest rate quoted is a flat rate, it means that the interest due is calculated as simple interest on the amount of the loan. We can therefore use the simple interest formula to calculate interest due on flat rate loans.

Example 19

Calculate the total interest to be paid on a loan of $2500 taken for 4 years at a flat rate of interest of 10% per annum. Hence calculate the total amount to be paid back.

Solution:

So, the interest to be paid is $1000.

So, the total amount to be paid back is $3500.

Key Terms

loan, personal loan, interest, instalments, flat rate of interest

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